The cost of both depth equity and capital rise as a firm increases its reliance on one or the other. Suppose that a for-profit company has identified the following costs for debt and equity:
Percent Debt After Tax Cost of Debt Cost of Equity
0 ---- 12%
25 5.5% 14%
50 7.5% 16%
75 8.5% 19%
What is the optimal capital structure for this firm?